If you're self-employed or sole trader (sometimes a company directors are also asked) you pay your tax using a self-assessment tax return. (Limited companies pay corporation tax through a corporation tax return.)
How it works
- You get sent a notice telling you to complete your tax return.
- You can complete a paper tax return and post it to HMRC, or do it online (the deadline is later for online).
- You can use accounting software to complete your tax return. Make sure it's approved by HMRC by checking this list: http://www.hmrc.gov.uk/SA/software.htm
- Get your accountant to help.
- Call HMRC on 0845 900 0444 for enquiries.
What you need to fill out
- If your business' annual turnover was less than £67,000, you fill out the 'short' form, which is only a few pages long.
- For the short form, you provide details of any employment you've had in the last tax year, details of self-employment and your business' financial records, allowable business expenses, net profit or loss, tax allowances for vehicles and equipment, losses, Class 4 NICs and CIS deduction, and any other income you have received (such as dividends, benefits, and so on).
- It turnover was more than £67,000 you complete the longer 'full' form. On top of the above, you provide details of any UK savings and investments, UK pensions, annuities and benefits, life insurance gains and AVC refunds and any other taxable income.
- You might need to fill out additional pages for things such as pension contributions or income from renting land or property.
Paying your business tax bill
- If you fill out a paper return, HMRC send you a letter telling you how much tax you owe. Online, it's calculated on-the-spot.
- Your total tax bill takes account of the financial year ahead as well as the one you've just reached the end of. In addition to what you owe for this tax year (your 'balancing payment'), you have to pay the same amount again to have it on account for the following tax year. (You need to notify your tax office if you expect to owe a very different amount in the following tax year.)
- The payment on account (for the year ahead) is split equally and paid in two instalments - the first combined with your balancing payment for the tax year that's just finished and due by 31st January, the second by July 31st.
- When you get to the end of the next tax year, any balance owed to you or that you owe, according to what you paid on account the previous year, is added to or deducted from your balancing payment for that year. So if you owed £1,000 for the tax year 2009/10, HMRC assume that you'll owe another £1,000 in 2010/11. That means you have to pay £1,500 by January 31st 2010 - your balancing payment for 2009/10 plus the first instalment of your payment on account for 2010/11. Then you pay another £500 by July 31st 2011 - the second instalment of your payment on account for 2010/11.
- You can pay by debit card, by phone, cheque, post office, or online - you'll need your unique taxpayer reference (UTR).
Deadlines
- Paper returns: in by October 31st
- Online returns: completed by January 31st
- Penalty for late return is £100
- First instalment for tax payment: by January 31st (which means if you fill out your online return on 30th January, you'll have to pay on the same day)
- Second instalment for tax payment: by July 31st